The U.S. Treasury Department eliminated Puerto Rico’s International Banking Entities (IBEs), International Financial Entities (IFEs) and Cooperatives from its list of most significant “vulnerabilities and risks” related to its Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) policy.
The change is reflected in U.S. Treasury’s most recent National Money Laundering Risk Assessment (NMLRA) 2024 report, issued this month.
Treasury eliminated the inclusion of those Puerto Rican financial entities altogether from the section of the report dedicated to Entities not Subject to Comprehensive AML/CFT Requirements.
In its previous report of February 2022, Treasury had included a section entitled Special Focus: Non-federally Chartered Puerto Rican Financial Entities, in which it highlighted the risks represented by IBEs, IFEs and cooperatives from Puerto Rico because they were not subject to federal regulation that requires federally-chartered financial institutions to establish and maintain an anti-money laundering program.
But a rule issued by Treasury’s own Financial Crimes Enforcement Network (FinCEN) made the requirement equally applicable to such Puerto Rican financial entities, effective March 15, 2021. “[Those] Puerto Rican financial entities are now required to implement AML compliance programs and are subject to criminal and civil penalties if they fail to do so.
“It’s impossible to overstate the importance of this positive change in U.S. Treasury’s assessment of these Puerto Rican financial entities and, by extension. the Island’s entire banking and financial system. To have been included in Treasury’s list of most significant “vulnerabilities and risks” related to the fight against money-laundering and the financing of terrorism-related crimes was a scar that affected all of us, even law-abiding banks and financial institutions, because of the bad reputation it generated,” said Puerto Rico Commissioner of Financial Institutions Natalia Zequeira, adding that the change in U.S. Treasury’s position on the matter “also reflects a recognition of the improved oversight we have been conducting during the last three years to demand from all financial entities operating in Puerto Rico the strictest compliance with applicable laws and regulations.”
Likewise, Commissioner Zequeira welcomed Governor Pedro Pierluisi’s signing into law last Friday administration legislation (House Bills 1699 and 1700) to strengthen further the regulation and oversight of IBEs and IFEs on the island.
The new laws amend the International Banking Center Law (52-1989) and the International Financial Center Law (273-2012) “to modernize and strengthen both, make them stronger, more efficient, more resilient and better prepared to face changes in the markets and ensure that the international banking and financial entities in them are solvent and solid, operate competitively and responsibly and contribute to the Island’s economic growth for the benefit of everyone in Puerto Rico,” Zequeira added.
The Commissioner explained that the new laws seek to demand an even higher level of compliance with applicable anti-money laundering laws and increase the Office of the Commissioner of Financial Institutions’ (“OCFI”, by its English acronym) discretion in granting or denying a permit or license when the result of the requisite investigation leads OCFI to conclude that the financial responsibility, experience, character and general aptitude of the proponent does not lend OCFI the necessary confidence or does not allow it to determine that the proponent would operate the international financing entity in an honest, fair and efficient manner in furtherance of the law’s objectives.
The legislation signed into law by the Governor raises the minimum capitalization requirements; raises the application fees to organize or operate an international financing entity; broadens the scope of the requisite investigation to include the economic capacity of shareholders and owners; increases bail requirements; increases the minimum number of employees required; increases the fees to obtain and renovate a license; includes insolvency as a cause to deny the renovation of a license; and broadens the Commissioner’s authority to deny an application when one or more of its shareholders, directors or proponents have been convicted of a felony, fraud, money-laundering, moral depravation and/or tax evasion, among other measures.
